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tv   Bloomberg Markets European Open  Bloomberg  January 11, 2018 2:30am-4:00am EST

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guy: welcome. you are watching bloomberg markets. i am in london. matt miller is in the house at our new london headquarters. excited to bely here. the cash trade 30 minutes away. a lot going on today. ♪ guy: fonts bouncing back yields on 10 year treasuries retreat. china rebuffs a bloomberg report that it plans to slow purchases of u.s. treasuries. and the talk -- has the talk of
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a bond rout in overdone? -- been overdone? another survey said 50 job vacancies have slumped. it talks about a seismic drop in brexit starting to bite. bitcoin has a bad day. the cryptocurrencies slums on new south korea is planning a crackdown on bitcoin exchanges. we are half an hour way to the european open. take a look at the futures. the wei trading up and futures mispriced, we will have a slightly positive open. you can see the cac less than .1 of 1%, the ftse even less in the positive territory. take a look at what is much more exciting and that is treasuries. the 10 year yield is what anybody is watching. the question is, are the biggest names in finance wrong? bill not -- bill gross, jeff dunlop -- gundlach.
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continuing to buy treasury. that would be hard for the market to bear but we have the yield coming back down, 2.45. let's get the bloomberg first word news. says in report claiming officials reviewing the country's foreign exchange holdings have recommended halting purchases of u.s. treasuries, they might have reported a wrong source. the administration of foreign they may have cited wrong sources or maybe from the news. it was not clear whether the recommendations had been adopted. has president donald trump predicted the crisis between america and north korea will free -- be resolved without war. he promised the south korean president he wanted to protect
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the [indiscernible] >> we're building up our military to appoint we have never been before. we are also, we were weakened over the last long time but not with me. i do not expect that. we're going to have because of strength peace through strength. germany is maintaining its hard-line stance on brexit. demanding the u.k. pay for the privilege of its financial firm having access to eu markets after it leaves the block. according to german officials britain cannot hope for a trade agreement that includes financial services unless it agrees to make substantial contraventions to the eu budget and adheres to european law. the canadian dollar and mexican peso fell after canadian officials said there is an increase in likelihood that president trump will give six months that is to with straw from nafta. a white house official insisted
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there has been no change in the president position on the trade pact. wto complaint over american duties, a move described as an ill-advised attack. is trading lower after south korea's justice ministry said it is preparing a bill that would shut down digital currency exchanges. an earlier report cited the ministry expressing concern about serious risks associated with exchanges. fevered demand has driven up demand. arm slaves has -- have stolen jewels from a boutique. at $5.5 million. police arrested three suspects but to others got away. several jewelry stores have been targets for dramatic robberies including cartier, harry winston and ship off. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.
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this is bloomberg. saly ringing us up to speed. the big question this morning is , is a great treasuries selloff over? 10 year yields flirting with the highest level since 2014 yesterday reaching up the but we seem to be using the word bondmageddon. yearsillion auction of 10 drove the strongest demanded more than a year. let's talk to mark cudmore. that the markets put two fingers up to bill gross? mark: there is a little bit of that. a one-dayon is festival. every time we see 10 year yields spike up, we recognize the names calling for this bear market in bonds. yearbecause we had a 30
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bull market in bonds that has come to an end it does not mean we need to go into a long-term bear market and we will stay where bond yields are bouncing around in a wide range. they may make higher highs. even when bill gross was asked to clarify his comments he talked about it bariatric -- where yields would go 20 basis points higher. we are not talking about a proper bear market. i think we will see 10 year treasury yields come lower in the next two weeks. we had this price blowoff top on this misleading china report. there has been a clarification on that. that story was overhyped in the first place which many macro investors started to interpret which is why treasuries rallied. it did seem to be based on wrong sources or fake news. that story is out of the way that treasuries can rally.
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the market will be left chasing it. the price action seems like a blowoff top in yields. later this year he might go higher. disinflationary pressures remain strong and i do not see the start of a bear market in treasuries. att: are bonds attractive 2.5%? do investors look at that and think i can get it or yields elsewhere? a very valid question. we saw in the option that yields up our attractive. you saw a massive bid to cover. people want these yields in the -- one of the most liquid assets in the world. it offers a proper yield. we are seeing many yields and many assets giving the bull market shrink elsewhere. getting a supposedly the most safe asset in the world, one of the most liquid assets and a decent yield seems like an incredible combo. this does not mean we can have -- cannot have yields a spike
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higher. you will see demand coming in. matt likes to use the other cpi data outrow's of the u.s. is that -- if that number comes through strong then we are back vist story.cti mark: bonds are in focus. not much left to the weekend pvi today and cpi tomorrow are important. we get a high print. we might get another like spike in yield. that is unlikely. we would have to surprise on the top side. we have not seen inflation run away to the top for a long time. for many years. i do not think one rent is going to change that story. if you ask when yields are higher yesterday i would have gone, yes. the market is vulnerable so they
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can squeeze further. we saw yields come from their highs. given that retracement, even that china clarified those comments, it is the treasury bears on the back foot. they are the ones who are nervous. going into cpi and ppi, there is risk with ways but the greater risk, the more likely the bigger reaction will be for treasuries to rally much more strongly than they can sell off from here. what centralon is banks are preparing for at least a little more than they were a year ago. yesterday i was at the golden conference andoldm it was a consistent view that the fed could hike four times rather than the three you see in the dot plot. mark: people are talking about that narrative. what is important about the treasury bear market, if we see
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four hikes we will not see 10 year yields go higher. we might see them come lower. we will see the curve invert for fear that there is excessive tightening. we will see further flattening overall. whether we see three or four hikes. if we see four hikes we could get the curve inversion which precedes a recession by 18 months. if you assume we get that in the third quarter you are talking about a recession in 2019, maybe early 2020. the global market in equities is likely to continue. the economic cycle is continuing positive in the u.s. but this does not mean that treasury yields need to come higher. we are not seeing runaway inflation and that is the most important thing. guy: let's talk about equity markets. chart ihe charred -- pulled off earlier. about to take a
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dip? --would be part of an onward ongoing upward trend. in theenerally we are camp that we are bullish equities. economics are right for short-term correction. vulnerable,es look the s&p looks a little vulnerable. worryingfield had a prescience for predicting these things including the nikkei crash. we started calling him mark "crystal ball" cranfield. we should stress this is the short-term. globalee pillars of the bull market in equities remain strong and that is solid growth, great earnings, earnings boosted by the tax reform in the u.s., even if that does not feature into growth, it feeds into earnings and there is rampant liquidity. you never boris and i am
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sure that there are other names out there. mark cudmore joining us from the blog. you can follow the guys, the team at mliv on your bloomberg. fantastic function. can't speak highly enough of it. tliv as well. we will use more [indiscernible] let's talk about what is happening with brexit. brexit could see 5000 fewer jobs in the u.k. by 20 30 according to the findings of analysis an analysis. job vacancies in the finance industry suffered a seismic drop in december. it could happen party season. of survey found a number positions fell 52%. i bring this up because matt miller was in frankfurt yesterday. matt: as were hammond and davis.
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widely business or serious newspaper in germany. they wrote an opposite -- an op-ed saying the financial system in europe depends on them getting a good deal for financial services here in britain. guy: anecdotally, you talked to , was the sense that the banking industry is taking frankfurt very seriously right now because if you look at what we just read, that would suggest that is the case. frankfurt seems to be the men -- main beneficiary. matt: floyd blankfein has tweeted about it. goldman sachs is a big presence as do all the banks. what you are seeing across the industry, almost no bank wants to admit that it is preparing to
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move or move in jobs from london to frankfurt. then a lot more bankers used to be in london getting ready to move to frankfurt. maybe that is because they are older, it is cheaper, and easier to travel but a lot of it has to do with the preparation for the great unknown after brexit. absolutely. we will continue to monitor this story. the numbers this morning, they may be affected by the fact we have had a december story breaking which could impact, could be impacted -- it is a big number. 52% is a huge timber and that is what we saw in london. be thingsure you will attention to those numbers. the cryptocurrency reacts to possible crackdowns in south korea. we will talk about bitcoin and the others. matt gets upset when we talk about bitcoin. matt: there are so many other
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alternatives. guy: that is next. this is bloomberg. ♪
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matt: welcome back to the european market open. i am matt miller here in london alongside guy johnson. let's get the bloomberg business flash. we go to juliette saly. has cut itsyer
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stake as part of its ongoing land to focus on drugs and life sciences. due to strong investor interest the placement volume exceeded expectations amounting to 1.8 billion euros. it has been peering at stake in the form a division as it shifts from industrial chemicals after agreeing to buy monsanto. the italian maker of the tele--- business. acquiring a an agreement could be signed as early as sunday. the business which includes the butterfinger mbb with rand -- and baby ruth brand said business is declining. bitcoin dropped below $13,000 earlier this morning after south korea's justice ministry said it is preparing a bill that would shut down digital currency exchanges.
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an earlier report cited the ministry expressing concern about serious risks associated with those changes. withare investors thinking the latest development question mark we have seen governments clamp down like china and the digital currency has been resilient. >> the treating we are seeing is a sign that in the short-term, investors are pulling out from cryptocurrencies. bitcoin is down, some of its rivals are down. ethereum hasn and dropped. it looks like a bit of selloff. investors i talked to in the industry think this does not necessarily harmed the long-term prospects for cryptocurrencies and bitcoin because they are bullish on it. we saw a drop in bitcoin at the end of last year but he was up 1400%. a rangeeen trading in
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this year. it has come a long way in the past year. guy: the regulators are getting their teeth into the story and to get a sense that this is the beginning of the regular -- regulatory position likely to crowd in on this space. is the sense that we are seeing more of this? eric: it is interesting. we had a few people on bloomberg tv who mentioned in the sense it is welcome regulation. it is surprising given bitcoins past is a freethinking, libertarian side of finance. the industry realizes you cannot get away from regulation. in the case of south korea, it follows on something they got from china late last year. it is something that has been expected given the rhetoric that has come out of the south korean government for a few months. this was not necessarily a big surprise but there was a little
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bit of selling today. the question is and going central banks and regulators going to continue on this path? it seems like they're going to continue but how that will play out is a question and for investors, they will continue to go to places that do not have the same amount of regulation until they run out of places to go to. the are not at that point yet that it is an ongoing story. matt: there is that libertarian total free market vane. , bitcointhe community which a lot of people mistakingly think is anonymous, can beseudonymous, easily tracked and there are new cryptocurrencies that have been built to avoid that issue or that problem if you see it that way. montero enzi cash are two of them. you hearing about challengers to bitcoin for this kind of consumer?
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eric: we have seen that over the past year. going into the beginning of last year, bitcoin amounted to 90% of the investable community. that number dropped in half by the end of last year. the positioning you have seen this year where bitcoin is on top in terms of market cap but you have rivals like bitcoin and -- bitcoin cash and ripple and a theory him. the community is looking for places to diversify. i would point to the investing community. that number has gone up which is a key point from talking to investors. as long as the pie keeps going the drop in bitcoin is not necessarily as big a concern. when you see the cryptocurrency investing community o or not continue overall growth, you might be more concerned about the future of the industry. matt: thanks for a much, eric lam joining us from hong kong
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covering cryptocurrencies. it has been still a great year for these considering where bitcoin started last year, 13,000 us better than a stick in the eye. guy: there are two great stories, one about bitcoins energy consumption. it could use more energy than argentina. it is a huge issue. it takes a ton of computing power to mind bitcoin. there are airplane hangers filled with machines that need to be cooled down and that takes a ton of energy. guy: absolutely. they discovered this huge prime number from this equation back in the 16th century. potentially reduce the power consumption because of the way the mathworks or works around all this. the energy one is worth the read. saying that bitcoin could consume more energy than electric cars. then all the electric cars
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in the world in 2025. one of the things i noticed is bitcoin is no longer among the top five, top 10 most read stories on the bloomberg. at the end of 2017, it was 4, 5, 6.tly guy: we are five minutes away from the start of cash trading. let's kick it off with the retailers, the big you pay retailers are out. there is a tliv going. give us the skinny on what is happening. >> i will run you down the main events. tesco's numbers look disappointing compared to what we have seen from morrison. recorddline numbers show christmas trading but the comp sales were up 1.9% compared to
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the estimates of 2.8. two reasons they are citing. the collapse of the supplier of tobacco and general merchandise also pretty weak at -1.6. that is tesco. it will be a bit week. , morganspencer's stanley's says that is routine which is nice. common clothing is down 2.8 compared with three. the food is a slight beat, estimatesown against of minus one. the guidance has unchanged. boo-hoo.com. are enjoying themselves. 90%ing their guidance to from 80%. estimates have been increased. matt: what do they sell?
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>> it sells clothes. access the stocks news with fris. on your lumber terminal. this is bloomberg. ♪ retail.
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the a minute to go until start of cash trading. let's talk about the background futures. it is trading off session lows this morning. the nikkei overnight down by around one third. oil is trading software as well. the inflation theme is still there. ppi data and cpi data today and tomorrow. yesterday, down a touch, but the real story was in the bond market yesterday. the wei and look at get an idea of what the fair values are telling us going into today's numbers. will watchs one we carefully. there is a tliv running on that, tliv running on your bloomberg.
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, the dax,00, the cac all called higher this morning. just a step forward rather than a step back. that is going to be the big story, isn't it? let's see how this open looks this morning. this thursday morning. ftse 100, 7748. we are trading around the flat line. 40, dax, expected to do better. what the sector story breakdown looks like as well. the bond market story has filtered into the rotation away from some of the bond proxies into some of the bicycle calls, so the cac, the docs from of the estimize, looking to open. i've asked looking at similar things as well. take a quick look at the imap to show you what is going on. financials are recently mixed. energy is off, so that's interesting and could take some weight out of the market. solidly bid as
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well, but the financials, a big piece of the pie, definitely trading softer. a quick look back at these markets. i want to see if we have the dax open yet. as ever, a little slow to get going, but i'm sure it will get going in a minute. i blame matt for this. he represents germany in the studio this morning. that's see exactly what's going on with the individual stocks stories, matt. takesthe system always longer to open than anything else. if you spend any time with the frankfurt exchange, there are very few humans. they have got to wait for the computers like a dos system to boot up. take a look at the movers on the day. this is the mrr functions or you can use it, member banks return, for any of the indexes, and you can play around with the job -- drop-down boxes. who are the big movers on the upside today in the stoxx 600? yesterday, we saw almost all banks here amongst the top 10
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finishing the day. today, it's going to look a lot different. you do have, as i look through, patty was one of the biggest losers. ladbrokes is one of the biggest gainers. you have microelectronics free tech stocks in europe few and far between. this is, i suppose, one of them. is one of the big day in his today, and i mentioned william hill, you can 2.3 percent. take a look at some of the losers in today's market. it will be interesting to see because the financials are a big piece of the imap high that guy showed you. here, indeed, we see bank of theand group right up at top. although no other financials really listed here. you do see paddy power down again today. second day in a row among the top 10 losers or bottom 10 losers depending on how you want to say it, and tesco, one of the
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big losers, down 3.5%. there is a tliv if you want to focus on retailers, if you want to follow the consumer story out of the u.k.. go> in yourn tliv < bloomberg to follow the supermarket earnings. guy: not quite so keen. morgan stanley has countered that treasuries are in a bear market, saying the market remains their value. market that i am talking about is a mild one, but it includes, you know, negative prices for high-yield bonds. set, the heads on of multi-asset income with investec asset management. are we in a bear market yet? approaching a bear market? is the value in the bond market still? are at the decision point,
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so if you look at whereupon yields are, if they go much higher than this, a lot of the technicians are going to say we have broken higher and we can't substantially go much higher in yield terms. is there value? we think there is some value towards the longer end of the treasury market because as interest rates go up, we would expect the curve to flatten in newets like australia, ne zealand, canada, where you expect carryover cash. at this stage in the cycle, i think it's right to be cautious about on markets. matt: yesterday, there was the china story. bloomberg published a report. interesting to see the chinese using a donald trump term. chinesertant is the buying to the u.s. treasury market? there was a time when they also were not net buyers of treasuries. >> i don't think they have been
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big buyers of treasuries for some time. number reserves peaked a of years ago, and typically, the buying has been the recycling of foreign exchange reserves, so if reserves are declining, they have probably been held steady. the big drivers, the bond markets, have not been central banks of late. they have been developed market central banks and and buyers like pension funds. personally, i think it sort of is a story perhaps put out at a time when relations between the u.s. and china are catchy, particularly over trade, so maybe it is just a shot across the bows to remind the administration that china is important and china, you know, there is a quid pro quo. the money back into the u.s.. if you want that to end, then be careful. was the line i saw that after that, things start to
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get interesting as well. the rate of change will be important. the rate of change is good to be really important. i read a couple of notes talking loops and howack the structure of the market gets set up. if we were to get beyond that 2.6 level, how does it work at that point? does the rate change? do we accelerate significantly faster to the upside? does the complexity story, to play in a big way? >> i think those kind of technical levels can be quite theificant, and when treasury market and other bond markets moved, you can have a period of acceleration. we saw that in the taper tantrum in 2013. we have seen it numerous times. you sometimes get a grind, but you occasionally get a big spike, and things in the mortgage market can exacerbate that, particularly if it is going forward less by mortgages
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and more the private sector. i think there is definitely a risk and from -- we're not technicians. we obviously look at what they say, and you have got people calling for a move back toward 3% or some talking about going higher. matt: not just any people, by the way. you have the biggest names in the bond so opera. they have, it seems, for the past 1.5 years, been constantly out there saying we are at a bear market. out of -- are these guys positioned for that? >> i guess the assumption would and thenou position advertise because you want ,eople to reinforce the move and we are not calling for a bear market. i think it is a risk if we start to break higher, because i think a lot of people will potentially jump on the bandwagon. longer-term, i think it is very hard to see why treasury yields
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should be substantially higher if you believe that in the long run it is going to be hard for a long waytighten above the 2% to 3% range. it is just cyclically and maybe technically, there are reasons to be cautious. guy: from the portfolio point of view, what does this mean in terms of the relationship between assets? there is a lot of funds out there based on the idea that you minimize volatility between asset classes etc., etc., and they manage that process. that requires volatility. it has been incredibly low. are we going to see volatility going up. is the mov to start to go higher? -- is the mov index going to start to go higher? >> it will pick up. and then, potentially, there is a knock on impact to volatility elsewhere. slightly careful.
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firstly, the reasons why treasury yields and other bond markets might be going up is in part that the global economy is very strong. it is late cycle. people are maybe thinking inflation might finally begin to rear its head. you might few breakeven inflation expectations. they have been rising. that is not necessarily that is for growth-orientated assets, particularly cyclicals, which tend to do quite well late cycle. at the same time, any pickup in volatility is going to potentially impact valuations and markets more generally, so, you know, i think it is about it'se, it's about speed, about how far this goes. if this goes far enough, a lot of the reasons people say equities can rise because they are not so valued, just look at members's bonds. they start to become a little bit more strained. matt: i have got to that point, equity yields in this chart. 6110 on the bloomberg. this is the u.s. s&p 500, and
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topix yields. this is a chart that goes to 2016. they have been coming down, down, down, and in the white, you have the s&p 500 yielding less than 1.85%. treasury yields even at these levels are still enticing compared to what you get in stocks, and on the other hand, if you see the price continuing to fall, don't you have to go into equities or commodities with your cash? john: if you look at what people have done over the last nine years or so since the global financial crisis, most of the money from investors has gone into fixed income markets. encouraged toen do that by central banks. we have not really ever had that --at rotation of people great rotation that people have talked about. we see etf buying in the run-up to post trump's election.
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some retailers what the story. i'm not sure institutional investors ever really got that excited. maybe they are a bit more euphoric now. there is some potential for rotation out of bonds into equities. but you are right. yields on equities have come down. they are looking less attractive. they are relatively constructive on equities in the short-term is just the strength of earnings, the strength of economic momentum, which potentially offsets any fears about rising bond yields. matt: i just want to point out. there is a function of the bloomberg, dis, which shows debt.ssed i have the number of distressed bonds traded in the five-year chart in a terminal. you can see it has come down significantly since 2016. in fact, at the end of last year, it came down pretty .ignificantly as well does that mean we are at the end of this high-yield cycle? john: our sense is that if you're looking to take exposure
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to economic growth, if you think that we are in a strong period of growth, you are better off doing equity, where you have yield spreads priced for -- defaults have come down and there is less distress out there, but it is hard for it to get much better. it also reflects very low volatility, so high-yield bond spreads are similar in nature to a measure of volatility, a measure of risk. risk is on the floor. we are cautious about chasing high-yield at this point, even if the fundamental story is pretty strong. guy: we will leave it there. thank you very much. john stopford, head of multi-asset income at investec asset management. they are off their earlier lows. we anticipated we would see weakness coming through. matt: we saw that yesterday in the u.s. market, indoor shares
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fell as much as 10% and one point as well. guy: the current price target that the analysts have as an aggregate is 899. we are trading at a significant discount to where the market is anticipating these chairs should be and that is getting bigger this morning. oil and inflation as u.s. crude holds near a three year high. what does that mean for growth around the world and inflation? inflation, the big subject for the next 24 hours. the big subject for the last 24 hours as well. we will discuss that, next. this is bloomberg. ♪
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matt: welcome back to the european open on bloomberg markets. we are just about 15 minutes into the session. take a look at how equity indexes are doing across the continent. here on this island, we are looking at a gain of .2%. you can see this is the world map function. go>, to see a view of how markets are trading globally. you can see the continent, the core of the continent, france unchanged., poland, italy, very little changed as well. and then, russia, a big drop there. mostly, we are struggling to find direction in the equities markets, but it is not really an equity markets story market candidate, is it? guy: it might be. we will wait and see how things happen. matt: i feel like it is a bond markets, bitcoin, and brexit -- guy: that is what we're talking
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about, definitely. let's talk about the energy aspect of the inflation story. brent crude trading below $70 per barrel, near its highest level in three years for u.s. breakevens have been rising steadily. i have the ego screen up on my bloomberg. u.s. cpi do up tomorrow. ppi due out today. is inflation just about to be around the corner? is that what central bank are signal? to you are getting the hint out of the fed and the more hawkish end of the ecb. the boj even starting to back off the longer end of the jgb market. all interesting stuff. the fight the fed, fight the central banks -- is inflation going to be the theme we spend more time talking about? as you haved, indicated already, breakevens are breaking higher. brent is trading just up $70 per barrel. you are starting to see some hints of wage gains come through
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. is the market underplaying inflation? marketell, i think the is fairly complacent, and it is sort of learned. inflation has done nothing despite falling unemployment rate, stronger growth, for a number of years, and if anything, it has disappointed consistently to the downside. core inflation around 1%. core pce around 1.5%. the market needs to see some evidence that is changing but then could react quite significantly. there is a reasonable chance wages will gradually claw their way back towards 3%. the issue is it does look as though the response of inflation me,tronger growth, excuse is much weaker than it was in the past, and then you have also got some funnies like health care, which tend to distort the number. we are not looking for inflation to run a way. if we get inflation, it is going to be at this stage in the
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cycle. matt: i want to quickly show you more functionality on the bloomberg. we have some great information. if you type in ilbe , you can see all of the breakevens. i have narrowed the universe down to the g7. the biggest breakevens are in a yo u.k. in u.s. bonds. i wonder if the central banks are starting to -- as the market is starting to realize the central banks are taking note, because yesterday, at the goldman sachs conference in frankfurt, everyone was talking about the fed raising four times this year, even though the dot plot only shows a plan for three increases. by the way, dots is a great function to see what the fed is looking for, but it -- is the market starting to expect more from the fed than the fed is showing? john: it is beginning to tip
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that way. i mean, if you look at market pricing versus the dots, they are probably still below, but the market has always underpriced dots, but it is probably closer to where it has been for some time. i think markets are beginning to build in the risk that the fed do more than they said. last year, for the first time in a number of years, they actually followed through on their promises, so the risk of them doing that is there. it is a cyclical story, and it is more about growth, it is more about unemployment, and it is pretty broad spread. you are seeing it in japan at the margin. you're definitely seeing it in europe. you are definitely seeing it in the u.s.. guy: let's say inflation does come back -- i'm not talking runaway inflation. but let's say inflation starts to tick a little bit up during what assets do i buy? where -- what is my inflation protection in a world where inflation goes from kind of pce
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at 1.5 to pce at 2.5? or maybe a little bit higher than that? what do i own in my portfolio -- matt: especially, john, if you are already all in bitcoin. [laughter] john: possibly not. i think those kind of inflation rates, historically, are not that damaging for equity markets. so, companies that have some pricing power can still do pretty well. if you get a major selloff in the bond market, as we said, maybe we get a decent correction in equities, but more cyclical equities, commodity linked, and resources and materials energy, those kind of things should be upbeat in that kind of environment. they liked cyclicality and pricing power. they are not particularly expensive. guy: let me jump in. the ratio of defensive statistical has pushed up quite a long way. you can see it is pushed up even further. the reason i'm-
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asking the question is, is how much of this is already there? how much more can i get in these kinds of spaces? minors have come back a long way off their lows. is there still areas of value that represent inflation protection? john: most definitely. look at valuations on minors or energy companies, they are essentially still pricing in spot prices of metals, spot prices of oil declining from current levels, so they have not priced in -- they are not expecting the rally in commodity prices. they are expecting it to correct at some point. big falls and iron ore, oil -- in iron ore, oil, copper, and so on. it prices hold up, there is scope for the equities to do well, not least because it is not just about a pricing story. it is also about better cost management. you know, better capex, and so
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on. we think those are companies that have fundamentally adjusted their approach to a new reality, less about volume, and more about return. and now, they are getting this sort of tailwind of higher commodity prices. that is not in the price. matt: there was a time when any time we spoke about inflation, we would talk about old. i just noticed that has not been happening a lot lately. guy: because we are talking about bitcoin. john: bitcoin is the new gold. it's one of the two. matt: i just wanted to show you this chart, 9171, on the bloomberg, which shows gold in white versus tips and blue. it ghosted show that based -- it goes to show that they still track it, gold and its relationship to inflation. i want to get back to -- john stopford, head of multi-asset income at investec asset management -- is going to stick
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with us. i want to get back to the stocks story, 23 minutes into the stock market open. nejra: mid-cap movers, and starting with william hill, i'm going to look at the retailers. outperforming at credit suisse, sinceg the highest august, 2016. and then, talking of retailers specifically in the u.k., a lot of focus on them today. coming spencer, sales slightly above expectations in both food, and clothing. a little bit of concern from the ceo. he started talking about brussels sprouts at one point. consumer is definitely squeezed. sentiment is fragile and volatile. down 2.9%. card factory really getting whacked down more than 20%, down its lowest since 2014, and dropping the most since it
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listed. 11 month sales -- it is about the bottom line. they talked about continued margin pressure. that is one of the reasons stock is getting hammered. guy: just back to match point about -- matt's point about gold. the case for gold. the point of making that maybe gold actually is out there. they make the point that it could be the surprise outperform are in 2018. john, your thoughts on that? could gold the the place to hide out this year? john: if people are worried about inflation, gold could do relatively well, and to some extent, it is a defensive play. my problem is i run income portfolios. guy: it does not generate a yield. volatileis a pretty asset, so it is quite hard to put in a defensive portfolio as well. there are better hedges against the yen, for example,
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which we think is underpriced. the risk of the bank of japan running away from this policy is underpriced. there are other ways you can play defense than just hunting gold. matt: there was a time when the swissie was the biggest hedge against risk, but it seems to be caught up in its own inflation game. conscious ofe very their exchange rates against the rest of europe, particularly the euro. they are running super easy policy. at some point, maybe this was the comes back. we have seen a pattern when central banks begin do hint it is all over in terms of qe, the market begins to we price, and we have seen that with the yen, having see that with the euro. matt: john is going to stick with us, john stopford from investec asset management. there is a lot going on today. guy: draghi keeps his eye on inflation. the look ahead to the release of the accounts a little bit later on. he's going to replace -- who is going to replace draghi as well? we will focus on that.
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the question i also want to ask is how symmetrical is draghi? can inflation overshoot? they will be pretty comfortable with that as an idea.we will talk about that, next. this is bloomberg. ♪
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matt: we are 30 minutes into the trading day. here are the top headlines for you. bonds bounce back. yields on 10 year treasuries retreat after china rebuffed the bloomberg report that it plans to slow purchases of treasuries. has talk of a bound route been overdone -- on route been overdone? could see 500,000 fewer jobs in the u.k. by 2030. another survey says city job vacancies have slumped seismically. is brexit starting to bite? bitcoin has a bad day. south korea is planning to crack down on the bitcoin exchanges. is there were still come?
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good morning, and welcome to "bloomberg markets: european open."i am matt miller alongside guy johnson literally at our european headquarters here in london. guy: a bit like a pantomime behind you. we are 30 minutes into the trading day. let's take a look at the grr. in this point in time. the stoxx 600 doing absolutely nothing. i'm seriously waiting for matt miller to disappear behind me. the basic resources sector is leading the charge, doing well. the minors are on the front foot. we have been talking to john stopford about this. he believes there could be value there. food and beverages are doing well. the bond proxies are starting to bounceback. it is up by .1%. the bond proxies -- the market has sold these two sectors off over the last few days. retail is showing signs of weakness. we are seeing signs of that. we have an awful lot of u.k. grocers reporting their numbers this morning. if you want to track that story
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specifically, go to your bloomberg. type in tliv . it will be the live blog currently underway, analyzing what the grocers have told us this morning and what exactly the share price reaction has been for that. interest in stuff in there, from a few. let's get the bloomberg first word is sebastian salek. sebastian: china says a report claiming the foreign-exchange holdings have recommended halting purchases of u.s. treasuries might have quoted a wrong source. in an apparent reference to a bloomberg news a story published yesterday, it the administration said "we think the report might have cited wrong sources or maybe fake news." bloomberg reported it was not clear whether the recommendations had been adopted. trump has predicted the crisis between america and north korea will be resolved without war. he promised moon jae-in that he thet attack the north while two asian nations hold negotiation's. trump was speaking during a white house news conference with norwegian prime minister.
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pres. trump: we are building up our military to appoint we have never been before. weakened overuch the last long period of time, but not with me. no, i don't expect that. i think we are going to have, because of strength, peace through strength. sebastian: the u.k. would have ifmillion fewer jobs by 2030 it leave the european union with no deal on the single market. that is according to a cambridge econometrics study of five brexit scenarios commissioned by -- it found every outcome it analyzed would damage the british economy, but the more distance it puts between its future and current trading arrangements, the worst things got. germany is maintaining its hardline -- from brexit, demanding they pay for the privilege of the markets. according to german officials, britain cannot hope for a trade agreement that includes
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financial services unless it agrees to make substantial quantity to the e.u. budget and follows e.u. law. the canadian dollar and mexican peso fell after officials said there is an increasing likelihood that president trump will give six-month notice withdrawal from nafta. canada this week filed a wto complaint over american duties, a move described by robert lighthizer as an ill-advised attack. armed thieves have stolen jewels and other goods from a boutique in the paris ritz hotel with reports valuing them at $5.5 million. police arrested three x -- three suspects. several high-end jewelry stores have been targets of dramatic robberies including cartier. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. matt: thanks very much for that.
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don't fight the central banks to rid the fed, the boj, and the ecb are all sending broad signals that they are bracing for a period of somewhat accelerated inflation. is it time for investors to well?their outlook as traders will be looking to the ecb's december accounts, published later today, for mario draghi's views on inflation, as well as you might -- replace him. who might replace him. joining us is richard jones-drew and richard, what are you expecting for stuff from the ecb? from any time you get fed minutes or ecb account, you are always looking for a little bit more color than what we got at the time of the meeting. accountecall, for the for the october meeting of the ecb, which was the previous one, we had a bit of concern from the governing council members about putting an end date on the qe purchases.
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and that concern, i think, is something that investors will be looking to see if that is still there from the december meeting, if that concern is still there. you are always looking for nuances in the debate on the governing council, and that is the kind of thing that investor will be looking for. any broader take on what we heard from mario draghi last month. we have heard from seidman, he used to be a dove and is a lot more hawkish good are we going to learn the balance continues to shift in the hawks' favor? richard: given that we have heard that since mario draghi's press conference in december, that is one thing that i think we need to look for. is there an emerging slightly more hawkish tone from the debate within the ecb? i think there is lots of reasons to believe that inflation could be moving in a direction that central banks want. i mean, the global growth story is something that does have legs and is something that should
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lead to higher wages. i mean, we have got german wage talks going on between the big unions and employers at the moment. we will get a decent take on what that means, and what growth means in terms of wage settlements soon enough. if we cannot get a decisive weight gain in germany, given the strength of the economy, i think it makes it difficult and challenging for the rest of europe to achieve those gains. as a result, we might get a more dovish ecb of those wage gains are not commensurate with the levels required for them to reach their inflation target. must in a sense, the ecb almost be hoping for that situation, richard, because if you do get strong inflation in germany, and then you do not have it in the peripherals, that just causes the more headaches, doesn't it? richard: well, i think if you do get better wage settlements in that should give a broader read into the rest of the euro area.
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you might not get wage gains matching those in germany, but if they are heading in the same direction, that's probably enough for the ecb to take comfort. but you are right, matt. the great thing about the economic recovery is that germany has been very widespread over 2017. let's see if those wage gains do develop and are equally widespread. that will be key to the ecb. guy: absolutely. keep an eye on that output gap. richard jones in berlin, thank you. bloomberg, orour occasionally, tliv as well. john stopford is still with us. years -- and we were all there watching them -- dealing with the issue of deflation. it looks like that is now past. that dragon has been slain. they arenny uplands, not going to want to stomp on that. they are going to be so, so scared of doing anything that upsets this story.
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the monetary stimulus is going to continue in europe. what does that do to my investment in europe?how should i think about minds it europe?tment in they are going to be doing anything that undermines this. john: their policy has been relatively tentative so far, but i think there is some division in the ecb. traditionalists are concerned, particularly the germans perhaps, that output gaps are closing quite quickly, and they don't want to, you know, leave policy too loose, too long, and it creates speculative excess. i think there is a bit of a battle, and it is hard for the doves to win that battle if growth is quite as strong as it is at the moment, so we are to be growth of maybe 3% or so in europe. and that is well above any idea of potential. be graduallyng to moved towards the exit, but it
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is going to be relatively tentative. in terms of which, assets do well. circumstances, given how much longer term dovishness is priced into, for example, german bunds, you would expect you'll to rise, and to start to underperform markets like the u.s. we have seen u.s. treasury yields much higher, and that gap, i think, potentially narrows. you probably expect the euro to continue to gain over the medium term, so the dollar against the euro tends to move in pretty long cycles. we have had a long dollar bull market. it came to an end last year. it looks as though we are in the early up limbs of a recovery in of auro -- early uplands recovery in the euro. matt: very difficult question, but -- john: it is a process. we would argue that fair value is probably back towards the 130 , so it haslevel
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potentially got some scope to go. i don't think it will go there and a straight line. there are clearly unresolved issues in europe that can come back in the medium term. you know, it -- europe is running a large current account, surplus. the u.s. is running a large deficit. interest-rate and policy potentially moving in the right direction. it's got decent growth momentum am a etc.. i think there is a reasonable story medium-term for the euro. matt: john, it has been a pleasure. think is a much for joining us in our new european headquarters in london. just offered, head of multi-asset income at investec asset management. he will be joining guy and myself on bloomberg radio daybreak europe, bloomberg daybreak: europe, later on. if you are in london, you can do that in london, dab digital radio. in new york, on sirius xm. headlines coming out of the german coalition talks. right now, the union, the cdu, and the csu block, is negotiating with the spd to
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create another grand coalition. angela merkel saying it will be a tough day in decisive coalition talks, and she is going to do everything she can for the possibility of success there. she is going to work for success because she needs that much more she she would prefer -- would prefer that much more than she would a minority government or new elections, and clearly, she is going to say it is going to be a tough day because even if negotiations are easy, you want to project that they are difficult to you so you can get what you want. guy: expectation management. we are going to talk about what is happening in south africa. will south africa's president be outed by supporters? he be the next leader of the amc/? when does that take place? that conversation is coming up. this is bloomberg. ♪
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matt: welcome back to the european open on bloomberg markets. we are 45 minutes into the trading day. markets, equity markets at least, have yet to find a lot of direction here, but we are the bondclearly, on market. also, looking at south africa and the developments they are politically. supporters of deputy president in south africa are said to be planning to oust jacob zuma as
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the leader. according to three people with knowledge of the matter that background of those the -- ram aphosa plan to do it next week. thanks so much for joining us. this is something we are hearing about on the eve of the election, that it would happen right away. what is taking them so long? >> i think they don't want to make public the internal fights that are happening within the amc. the deal has already been struck leavingpect to zuma earlier than his the parts are of spring next year. matt: and that would entail, what? he gets immunity from all prosecution? , and inhe gets immunity return, he concedes to some of these legal proceedings like the opening commission into the
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taoup to influence on -- gup influence on capture. they don't want to bang centers of power within the country. guy: the longer that takes some of the weaker he is, right? john: yes. -- pheonix: yes. guy: if we start projecting forward, say it takes a couple of months for this to happen, does that mean we go into the year on the back foot, is that the kind of five the ball will take away from that that his power is not quite so great, and what does that mean for south africa? pheonix: there are crucial events happening over the next 1.5 months to two months. whoever is the south african president at that point in time, and that is early february, and we have the budget announcement oning out of the country february 21, so that is 1.5 months away. so i think there will be momentum for this to happen
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before those events in order for ramaphosa to really take the lead, exert his influence, and start to make changes within the cabinet, and start to present the case for the country to i thinknext year, so there will be a lot of momentum for this to occur relatively shortly. matt: i have a chart from the bloomberg. you can access this by typing g #btv 8988. overnight volatility in the rand jumps up again. the big spike was surrounding the election at the end of 2017. this chart goes back a year, but you can see the end of the chart coming into the banning of this -- the beginning of this year. it is starting to rise. what kind of investment strategy can you form around the uncertainty we are still seeing there? pheonix: we just took profit on our trade yesterday because we felt it had gone too far and the markets were pricing too much cuts from the south african central bank.
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i think, going forward, most of the good news have already been een priced in. they might be short rand to offset the negative carry. point,cking up on this people expecting a lot from cyril. that was not the story that came out of the conference. there was a more mixed -- there were horrible numbers out there. once you put these companies into the mix and look at the debt, the numbers are really quite dramatic. are we overplaying what he can do? pheonix: that's exactly our concern as well is there have been adoption of very concerning resolutions from the conference, including land expropriation. guy: zimbabwe kind of stuff that
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people are talking about, which is kind of terrifying. it's not that aggressive, but scary stuff. pheonix: those are warring proposals. they show that the duma fat -- the zuma faction of the agency is holding power. they have been adopted by the party. he stands for party unity instead of his own personal ideologies. it is going to be a case in which the anc compromises on a lot of the ramaphosa platform in order to build unity ahead of the election. matt: you don't expect to be reduced as much as may be we would have thought previously, because he was being touted as a candidate for economic reforms, and does not seem you are going to get quite as much as we thought previously pheonix: right, and with our expectations that there is a deal behind the in a regarding zuma's exit
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face-saving manner, then it is not really going to root out the sources of corruption. it's central bank independence now fully established in the ru ramaphosa era? pheonix: it has not been compromised. that is done, even though there are efforts now to nationalize the central bank, that is kind of at the french. it does not impact monetary policy. guy: one of the things people talk about is the idea that it does have the mechanics of government that is still relatively solid and the mechanics are very important. thank you for joining us indeed. socgen.at pandora has lost its sparkle this morning over a revenue warning. the stock down 15%. that's next.
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this is bloomberg. ♪
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matt: welcome back to the open. one hour into the session. let's get to nejra cehic for some of the top stocks stories. nejra: i know you're desperate to hear about pandora. let's start with one of the biggest gainers. hexagon. the ceo has been acquitted of insider trading charges. it rose by as much as 7.4%.
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still higher by 4.2%. looking at pandora, so last year without a great year for the stock. it lost more than a quarter of its market value. it's hedge funds were shorting it. their revenue for 2017 will be lower than it previously expected after a number of external factors working against it. also said it is replacing the cfo, so we see the stock dropped the most in almost two years. finally, in keeping with the retailers this morning, tesco, lower by 3.7%. investors were expecting it to outperform its peers. it has come in a little disappointing. holiday sales missed estimates. the ceo says customers are cautious about the year ahead on the conference call. not a huge drop, but down 3.7% nonetheless. guy: i just want to say that i have got the short interest up of andorra and it has been picking up over the last few months. the stock is trading lower, as you can see. that is the short interest yieldg up around 11%,
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12%. the other thing that i want to mention is what is happening with hungary and israel. aey will hold the election on breakthrough the israeli shekel is on the move this morning. mr. matt miller. matt: interesting to talk about kare currencies. guy: matt is checking out bracelets. matt: pandora makes these charm bracelets, and i was wondering if that's cool, if that's the thing people buy their girlfriends. guy: if you are not wearing them, they are not cool. matt: at times, i do wear a form of charm bracelet. guy: the watch? matt: leather man has a tread bracelet that has multiple tools on it. [laughter] matt: in any case, back to the current two-story, it will be interesting to watch the crypto. it is interesting that we had crypto kind of, it the endike, peaking at of next year, and goldman
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getting into maybe starting a trading desk your it maybe people are going to give up plans like that. guy: we will see. up next, "surveillance." francine lacqua joined by tom keene. matt and i are going to go to bloomberg radio. ♪
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♪ treasuries recover after a surge with 2014 highs. a 24 hour bug. trade travels increasing off of trump pulling out of nafta. will america actually leave? and crackdown, bitcoin falls as officials say they are looking at the fed to regulate digital currencies. ♪ francine: good morning everyone, and welcome to "bloomberg: surveillance." i'm francine lacqua here in london.

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